Is Bankruptcy a Good Option?

Ultimately, if you have a steady income and valuable assets, Chapter 7 may not be a good fit for you. If you do not have significant income or assets, it may be the right choice. The Kansas City bankruptcy attorneys at Patton & Dean, LLC can help you decide. Call us today for a free consultation.

Chapter 13 vs. Chapter 7 Bankruptcy: Key Differences

When deciding which type of bankruptcy to file for, it’s essential to understand the differences between Chapter 13 and Chapter 7. Here’s an overview:

Eligibility Requirements

• Chapter 7: Available to individuals who pass the Bankruptcy Means Test, which assesses their income and expenses. Those with higher income may not qualify for Chapter 7 and may need to consider Chapter 13 instead.
• Chapter 13: This is for individuals with a regular income who have the ability to repay part of their debts. Chapter 13 allows individuals with higher incomes or those who do not qualify for Chapter 7 to develop a manageable repayment plan.

Repayment Plans

• Chapter 7: This type of bankruptcy involves a quick discharge of most unsecured debts (like credit card debt and medical bills) after liquidating non-exempt assets. There's no repayment plan for Chapter 7; instead, the focus is on discharging debt.
• Chapter 13: In Chapter 13, you propose a 3- to 5-year repayment plan to pay off your debts over time. You make monthly payments to a bankruptcy trustee, who distributes the funds to creditors. Chapter 13 is ideal for those with a steady income but who need time to catch up on debts like a mortgage or car loan.

Property and Asset Protection

• Chapter 7: Some of your property may be sold to pay creditors, though exemptions allow you to keep certain assets, like your home or car, depending on your state’s laws.
• Chapter 13: You can generally keep all your property, as long as you stick to your repayment plan. Chapter 13 allows you to restructure debt, making it more manageable.

The Bankruptcy Means Test

The Bankruptcy Means Test determines whether you qualify for Chapter 7 bankruptcy. It’s based on your income and family size.

• Income Limit: Your income is compared to the median income in your state for a household of your size. If your income is below the median, you qualify for Chapter 7. If your income is above the median, you may need to file for Chapter 13.
• Expenses: The test also considers your living expenses, like rent, utilities, and transportation costs. After accounting for these expenses, if you still have enough disposable income to repay a significant portion of your debts, you may not be eligible for Chapter 7.

The Role of a Trustee in Chapter 7 Bankruptcy

In Chapter 7, the bankruptcy trustee plays a vital role:

• Asset Liquidation: The trustee is responsible for identifying and selling non-exempt assets to repay creditors. This is often a key aspect of Chapter 7, but many filers have no assets to liquidate due to exemptions.
• Reviewing Documentation: The trustee also reviews your bankruptcy petition and supporting documents to ensure accuracy and ensure that you meet eligibility requirements.
• Distributing Funds: If any non-exempt assets are sold, the trustee distributes the proceeds to your creditors, prioritizing secured debts (like a mortgage or car loan) before unsecured debts (like credit card bills).
• Ensuring Fairness: The trustee’s role is to ensure fairness to both the debtor and creditors by following the bankruptcy laws and ensuring proper procedures are followed throughout the process.

Understanding these key differences and roles can help you make an informed decision about which type of bankruptcy is best suited for your financial situation. Whether Chapter 7 or Chapter 13 is the right fit depends on your income, assets, and the type of debt you need to address.

Frequently Asked Questions (FAQ)

• Can I file for bankruptcy if I have a job?
  Yes, you can file for bankruptcy even if you are employed. However, your income will play a significant role in determining whether you qualify for Chapter 7 or need to file for Chapter 13 bankruptcy. If your income exceeds certain limits, you may need to file for Chapter 13 and set up a repayment plan.
• How long does it take to complete a Chapter 7 bankruptcy?
  Chapter 7 bankruptcy typically takes around 3 to 6 months to complete, depending on the complexity of your case. Once your non-exempt assets are liquidated (if any), the bankruptcy court will issue a discharge, eliminating your qualifying debts.
• Will bankruptcy stop creditor harassment?
  Yes, filing for bankruptcy triggers an automatic stay, which halts most collection efforts, including calls, lawsuits, and wage garnishments. This provides immediate relief from creditor harassment while your bankruptcy case is processed.
• Can I keep my home and car during bankruptcy?
  In Chapter 7, you may be able to keep your home and car if they are exempt under state laws and you are current on payments. In Chapter 13, you can keep your property as long as you follow the repayment plan, even if you have fallen behind on payments.
• Will bankruptcy affect my credit score?
  Yes, filing for bankruptcy will impact your credit score. A Chapter 7 bankruptcy stays on your credit report for up to 10 years, while Chapter 13 stays for 7 years. However, many people find that bankruptcy helps them rebuild their credit faster than continuing to struggle with overwhelming debt.
• Can I file for bankruptcy multiple times?
  Yes, you can file for bankruptcy multiple times, but there are time restrictions. For instance, you must wait at least 8 years after a Chapter 7 discharge to file again for Chapter 7. You can file for Chapter 13 sooner, typically after 2 years from a previous Chapter 13 filing.
• How much does it cost to file for bankruptcy?
  The cost to file for bankruptcy varies depending on the type you file for and the complexity of your case. Filing fees for Chapter 7 are generally around $335, while Chapter 13 costs approximately $310. Additional legal fees may apply if you hire an attorney for assistance.

Struggling with Debt? Contact our experienced Kansas City bankruptcy lawyers help you explore your options. Call (913) 203-4786 for a free consultation today!